How Small Businesses Can Refinance Their Debt

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In the consumer world, refinancing is now pretty much commonplace. Most individuals realize that, as their credit rises and situation changes, they’ll often be provided with opportunities to borrow money at better rates than they may have had to settle for previously. Furthermore debt consolidation has grown as a way for borrowers to lower their interest rates and ultimately get themselves out of debt. However, most small businesses owners don’t realize that some of the same opportunities are also offered to them.

All too often entrepreneurs put themselves and their businesses in jeopardy by resorting to expensive short-term options in order to obtain capital. However, as online small business lender Able Lending notes, there may be hope in getting out of that trap and obtaining the capital you need at a more reasonable rate.  That said it’s not always an easy road.

Let’s take a look at the need for small business debt refinancing, some of the potential downsides, and how you can find refinancing options:

Why you’d want to refinance

As mentioned, there are several different ways that entrepreneurs can access quick cash for their businesses. Unfortunately some of these options carry high APRs (annual percentage rates) that could cost your business big time. Additionally options such as merchant advance loans not only cut into your profits but could also cause you to default if you don’t make enough sales. This reality has even led to a cycle reminiscent of the payday loan industry.

A recent CNN Money story provides an example of just how high those fees and rates can be. cited a recent Woodstock Institute survey of merchant cash advances that shows small businesses often end up paying effective interest rates that that reach triple-digit percentages. Spencer Cowan, an executive research consultant for Woodstock Institute, spoke to one entrepreneur who spent a total of $37,500 on a $24,000 loan they had out for only 76 days. With triple digit interest rates like that, it’s easy to see why small business owners would be looking for a way out as soon as possible.

Concerns to be aware of

Despite the obvious benefits, there are those who warn against small business refinancing. One reason for this that, on the surface, using a loan to pay off debt sounds risky — in fact, it almost calls to mind that aforementioned payday loan cycle. In that same vein, lenders and creditors alike worry about what’s known as “stacking loans,” which often serves as a red flag for defaulting.

While these concerns are well-founded, they don’t account for every situation. Although business owners should be very careful about over-borrowing, there are certainly cases where refinancing is ultimately in a business’s best interest. For that reason, it’s worth carefully exploring your options and weighing the pros and cons of each offer.

Refinancing options

If you do decide to pursue refinancing, there are a few different options available. One such option is applying for SBA refinancing, which allows you to pay off your existing debt with an SBA 7(a) loan. However this type of loan has several restrictions, such as the stipulation that the refinanced loan must “provide the borrower with a substantial benefit demonstrated by the payment amount being at least 10% less that the existing loan.” Additionally the application process for an SBA loan can take weeks or months, which may prove too slow for some business owners.

Thankfully many alternative lenders are now looking to help businesses with refinancing their debt. For example Able Lending offers loans specifically designed for refinancing short-term, high-interest debt. They also provide a helpful calculator so you can determine if refinancing really is the right option for you and your business. 

Ultimately the most important step is running the numbers yourself to make a well-informed decision. On that note, it’s always a good idea to explore multiple options and offers to ensure you’re getting the best deal possible. Remember: it’s short-sightedness that likely got you into your current situation — don’t make the same mistake twice!


When your business is in trouble, it’s understandable that you’d do just about anything to save it. However, as things improve, you could be doing your business a disservice by not refinancing your high-interest debt and replacing it with a more reasonably-priced source of capital. That’s why small business debt refinancing could be the best option for some entrepreneurs. Just be sure to evaluate the pros and cons of refinancing and remember to be honest with potential lenders who may have concerns about “stacking” loans. Good luck.

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Author

Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded DyerNews.com in 2015 to focus on personal finance and the emerging FinTech markets.

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